Sometimes we hear about how M&A is the new R&D. I wonder if Embrace & Extend is the new R&D.
A lot of startup business models involve building products that fill gaps in existing platforms. There is absolutely nothing wrong with that, and there have been a few success stories. But if you don’t own the platform, or if you aren’t wildly successful at filling the gap you’re taking a really big risk.
If you fill a gap in someone elses platform and you are moderately successful, then it means there is demand. You have done a fantastic job of demonstrating peoples willingness to pay for something. Twitter needed search functionality and acquired the company that was doing that, but instead of buying an existing control panel, Amazon just built heir own. There isn’t a reason why the platform itself will buy you rather than implement the features you’ve spent all your time building.
The issue seems to be the massive amounts of startups going after ‘low hanging fruit’. It’s one thing to be lean and get a product out the door, but it’s entirely another to be able to sustain your market for any reasonable amount of time. Perhaps one of the issues with the low hanging fruit, is that they are problems which are (relatively) easily solved, but the market hasn’t been proven, or a set of ‘best practices’ has not yet been established.
The new model for services & platform companies (which includes companies like Twitter and Apple) seems to be
- Create an ecosystem
- Let the ecosystem figure out what your product is and how its being used
- Cannibalize the features your ecosystem created for you.
It goes without saying that if you want to solve an Easy problem then you’re going to have a lot of competition (link shorteners, anyone?), and your chances for acquisition are actually much much lower. If you’re trying to solve a Hard problem then you will have less competition but you have to be careful – if you build your solution using someone else’s platform, what’s to stop them from taking your idea and just using it themselves? Does your idea work better as a Feature in an existing product, or would stand on its own? There’s nothing wrong with being a feature, but it’s really important that you know the answer.